Have you been thinking of remodeling your home? One of the benefits of living in Florida is that remodeling can happen at almost any time of year.
At Addition Financial, we love helping our members improve their homes. One of the most common questions we get at this time of year is:
“Should I use a home equity loan for remodel?”
It’s important to ask questions before you commit to a home equity loan. That said, there are some good reasons to use a home equity loan to remodel during the holidays. According to the US Census Bureau’s Housing Survey, 50% of all home equity loans are used for remodeling. Here are six key benefits you should consider.
#1: Remodeling puts value into your home
The biggest and best reason to use a home equity loan for your remodel is that both things – the loan and remodeling – are tied to the value of your home. A home equity loan uses the equity you have in your home (that’s the difference between your home’s value and what you owe) as collateral. Essentially, you’re borrowing against the value of your home.
Remodeling is, by definition, a home improvement. It adds value to your home. Whether you’re building an addition, upgrading the kitchen or adding a bathroom, the changes you make during remodel should add value to your home.
#2: Home equity loans have low interest rates
Because you’ll be using the equity you’ve accrued in your home as collateral, home equity loans often have lower interest rates than credit cards or unsecured loans. In other words, it may be significantly less expensive to use a home equity loan than it would be to put your remodeling expenses on a credit card.
If you get your home equity loan with the credit union or bank that holds your mortgage, you’ll also have the benefit of going to a lender who’s familiar with your good credit and will likely be eager to lend to you.
#3: You may be able to deduct the interest you pay
Do you itemize deductions on your tax return? If the answer’s yes, then you may be able to deduct the interest for your home equity loan on your tax return for the duration of the loan.
Because deductions can vary depending upon your overall financial situation, your best bet before deducting your interest is to talk to an experienced tax accountant or financial advisor. That way, you can be sure you’re taking the deduction properly.
#4: Home equity loans have flexible payback periods
One of the most common questions we get from members who apply for home equity loans is about the payback period. They want to make sure they can afford the payments and that they’ll have time to repay the loan.
Home equity loans often have long payback periods. For example, our Addition Financial home equity lines of credit typically have a 20-year draw time and an additional 15-year repayment period.
#5: Your home equity loan might pay for itself
You should only take out a loan if you can afford to repay it – that goes without saying – but home equity loans can help you by essentially paying for themselves when you sell your home.
If your intention is to remodel and then put your home on the market, it’s possible that the remodeling you do could add enough value to your home to pay for your loan as soon as the house sells.
To reap the benefits of your home equity loan, focus on remodeling projects that will add big value to your home. Here are some examples:
- Adding a second story
- Bathroom remodels
- Kitchen remodels
- Attic or basement remodels
- Garage door replacement
By focusing on the remodeling that adds the most value to your home, you can quickly recoup the cost of your home equity loan and even turn a profit.
#6: Remodeling can improve your quality of life
Of course, not all remodeling is done because you’re planning to sell a house. Perhaps you’re planning to add to your family or build a home office. Those things might not add a lot of value to your home, but they can improve your life.
Remodeling is a lot of work but it also comes with some significant payoffs. You spend more time at home than you do anywhere else. Investing in your home is a good way to feel proud of where you live – and to improve your living situation going forward.
Remodeling during the holidays gives you a chance to do your remodeling at a time of year when many people put construction on hold. Using a home equity loan to pay for home improvements can help you build value in your home, save money in the long run and improve your quality of life.
Thinking of remodeling this holiday season? Click here to learn how Addition Financial can help!
Posted on Nov 18, 2019
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